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Russia: Government Postpones Budget Meeting

Moscow, 1 December 1998 (RFE/RL) -- The Russian government's information department says that a cabinet meeting at which ministers will discuss the 1999 draft budget has now been postponed until December 10.

The meeting had already been postponed once, to Dec. 3, before being further pushed back to next week.

The information department said in a statement that the government "wants to submit to legislators in the State Duma an honest and sound document, and for this reason it has decided that the draft should undergo further preparation."

The statement also said that "the government will introduce important changes to fiscal legislation and will submit a package of fiscal draft bills to the Duma on Wednesday, Dec. 2." It said the draft budget will be changed on the basis of the Duma discussion on the fiscal package.

The statement said that Thursday's cabinet meeting will still take place, but with a different agenda.

The draft budget is a key element in Prime Minister Yevgeny Primakov's bid to pull Russia out of economic crisis, but so far Primakov's government has failed to deliver it.

Last Friday, in a much-awaited cabinet meeting, government ministers approved a package of tax changes that included a controversial proposal to reduce the value-added-tax (VAT) to 14 percent from the present 20 percent, in a bid to improve collection. Primakov said VAT would be cut to 10 percent by the year 2000.

The cabinet also approved a reduction in the profit tax from 35 to 30 percent, some reductions on energy prices and unspecified increases in income tax.

No mention of a discussion of measures supported by Finance Minister Mikhail Zadornov emerged from the meeting. Zadornov supports the reintroduction of export tariffs on crude oil and gas exports. These proposals, seen in Moscow at least partially as an attempt to obtain the favor of the International Monetary Fund (IMF), were opposed by First Deputy Prime Minister Yuri Maslyukov and also by the strong Russian oil and gas lobby.

The proposals on VAT cuts were reportedly pushed through by State Tax Service chief Georgi Boos, who said VAT revenues would not be lost, as more people would pay the more advantageous rates.

Most economic analysts have questioned Boos' argument. Several were quoted today by the English-language daily "Moscow Times" as saying Boos' logic does indeed apply to income tax, but does n-o-t apply to VAT, which is already the most easily collectable tax in any economy.

Zadornov, who says a lower VAT will only reduce revenues going to Russia's cash-strapped budget, reportedly strongly defended the current tax rate. Finance ministry officials suggested that the government had given in to pressure from lobbies outside the Cabinet.

The IMF is also unlikely to be pleased by the decision. Deputy Finance Minister Oleg Vyugin had warned before the Friday cabinet meeting that IMF officials would likely express strong exception to the prospect of reduced VAT revenues right at the moment that Russia is asking the IMF for financial support.

Government officials admit Russia will not have the means to balance the budget and are hoping for the release of a frozen IMF-led loan package and a restructuring of foreign debt. IMF Managing Director Michel Camdessus is due to visit Moscow tomorrow and Wednesday for talks with Primakov. Their discussions will focus on the 1999 budget and the government's economic plans.